As the 2024 USA Election nears, financial markets are closely tracking potential outcomes between Donald Trump and Kamala Harris, with noticeable movements in assets ranging from stocks to cryptocurrencies.
Pre-Election Market Shifts
As election day approaches, markets are showing significant fluctuations across various assets. Bitcoin has surged past $70,000, and the USD/MXN pair is nearing a breakout level of 20.00, approaching its yearly high of 20.23. Meanwhile, U.S. stock markets are hovering near all-time highs. This recent activity suggests that markets are pricing in higher chances of a Trump win, with betting markets adjusting in response. However, some analysts believe this optimism could be premature, especially if Harris manages to close the polling gap, leading to potential market recalibrations.
Election Day Reactions: 2024 vs. 2016
Drawing parallels with the 2016 election between Trump and Clinton, some insights emerge. A Trump victory may lead to a rise in the U.S. dollar and stock prices, reflecting investor confidence in pro-business policies. However, the possibility of a “buy the rumor, sell the news” scenario could limit gains, particularly if early optimism prompts profit-taking post-election.
- Stock Markets: Regardless of the party controlling Congress, fiscal and business-friendly policies are likely to support stock markets. A Republican-controlled Congress (“red wave”) would likely further boost U.S. equities and strengthen the dollar, with the expectation of renewed tariffs and tax reform.
- U.S. Dollar: Should Trump win, the dollar could extend its rally due to anticipated tariffs and potential risk aversion in equity markets. Conversely, a Harris victory may trigger immediate downside reactions in both the dollar and equities. A contested outcome could also lead to prolonged uncertainty, pressuring equities and prompting a dollar pullback as economic stability becomes a concern.
Market Reactions to Trump and Harris Wins
The economic agendas of Trump and Harris point to contrasting market impacts:
Trump Win Scenarios
- Protectionism and Trade Policies: Analysts expect Trump would push for intensified tariffs and stricter border controls, favoring domestic manufacturing. This could weigh on currencies like the Mexican peso (MXN) and the Canadian dollar (CAD), particularly if there’s a push to renegotiate the USMCA.
- Inflation and commodities: Increased tariffs could drive inflation, which may keep commodities like gold and silver elevated as hedges against inflationary pressures.
- Short-Term Deflationary Effects: Trump’s regulatory cuts could initially dampen valuations in certain sectors, aimed at reducing government expenditures by as much as $2 trillion annually.
- Long-Term Uncertainty: While a Trump win might create short-term optimism in equities and the dollar, long-term consequences of protectionist policies could adversely affect U.S. companies that depend on international trade.
Harris Win Scenarios
- Status Quo Policies: A Harris administration would likely maintain many existing Democratic policies, fostering a “status quo” market environment. This could stabilize markets quickly, allowing focus to shift back to Federal Reserve policies and economic fundamentals.
- Equities and dollar weakness: A Harris win could lead to an initial downside in equities and a weaker dollar, particularly if the outcome is contested and volatility persists. Over time, stocks may recover, and risk assets could rally, while the dollar might soften as the administration leans on fiscal stimulus instead of tariffs.
- Crypto and Emerging Markets: A Harris administration might exert regulatory pressure on cryptocurrencies, as Democrats have historically been cautious toward the sector. Emerging market currencies could also rebound against the dollar as trade policies stabilize.
Post-Election Market Landscape and Strategic Insights
After the election, markets are expected to return to a focus on fundamentals, presenting opportunities if certain assets have overextended. The Federal Reserve’s ongoing rate adjustments will remain a major influence beyond the election’s initial impact. Key perspectives include:
- Short-Term Volatility: Election day and the following period are expected to see heightened volatility. Traders will need careful risk management and strategic position sizing.
- Key Support and Resistance Levels: Equity markets have not seen major sell-offs in recent months. For instance, critical levels like S&P 500 support at 5700 and Dow Jones support at 41,510 will be pivotal. Breaching these could indicate broader market adjustments.
- Economic Fundamentals Over Politics: While policy shifts from the election are influential, the longer-term market trajectory will largely depend on economic data and Federal Reserve policy. Politics may drive short-term sentiment, but fundamentals such as job growth and inflation will ultimately guide the market.
Short-Term Volatility vs. Long-Term Drivers
In summary, whether the election results in a “red wave” or a “blue ripple,” the event will likely generate short-term trading opportunities across asset classes. However, fundamental factors—like interest rates, fiscal policy, and trade dynamics—will shape the market’s sustainable direction in the months that follow. Keeping strategy clear of emotional responses, monitoring technical levels, and staying attuned to economic indicators will be key for navigating post-election markets.
